In-house legal counsel must rely on external law firms to bridge gaps in knowledge and capacity, but these relationships come with their own inherent challenges
In-house legal teams are under pressure to make their resources go further than ever. While the coronavirus (COVID-19) pandemic has squeezed company margins, the expectation that general counsels will do more with less is far from a new phenomenon.
These departments must, more often than not, lean on a broad network of external law firms to either help them field specialist issues or simply handle volumes of work too large to manage alone. However, as companies seek ever greater efficiencies, corporate legal teams are increasingly expected to justify their expenses.
Managing these costs is one the primary concerns for corporate legal teams, according to a recent Conventus Law survey of 114 in-house counsels across the Asia-Pacific region.
More than half of respondents noted that one of their major concerns in using law firms was a lack of transparency and predictability around fees. This position gains added weight when considering that more than three quarters of those that participated noted that 25-75% of their legal department’s functions were handled externally.
The survey also found, however, that financial costs were just one area of concern. Respondents noted that in addition to their concerns over quality control and project deadlines they were often forced to manage a disconnect between what they needed and what law firms were able to offer.
Hiring decisions
No matter the company’s size, internal legal teams will always run into issues that require external support. Companies generally engage with outside law firms for one of three reasons: their own legal departments lack the necessary specialist expertise, there are capacity limitations or the business needs additional opinion.
Zhou Jiaxing, the managing director and head of legal for China International Capital Corp. (CICC), told Conventus Law that while his company’s in-house legal department had a large team of lawyers, the team handled many transactions every year and needed support to field the extra work.
Jiaxing said: “The work is intensive, with a single lawyer potentially handling dozens of transactions each year. We’re sophisticated users of legal services, but the sheer volume of what we do means we need an extensive network of outside counsel to manage the workload. The job of the in-house team then evolves into one of quality control.”
In-house counsel at a Hong Kong fintech start-up, who wished to remain anonymous, said their company relied on the market to provide the specialist expertise and resources.
“We often undertake quite innovative work which require very specialised and targeted expertise and access to resources, such as industry databases, that in-house teams do not have access to,” they told Conventus Law. “Having a smaller in-house team means we also run into capacity constraints.”
The work is intensive, with a single lawyer potentially handling dozens of transactions each year. We’re sophisticated users of legal services, but the sheer volume of what we do means we need an extensive network of outside counsel to manage the workload. The job of the in-house team then evolves into one of quality control.
Zhou Jiaxing, Managing Director and Head of Legal, CICC
Rienk Brouwer, the head of corporate service provider Vistra’s legal department in Asia, echoed this sentiment noting that the in-house legal workload at times was very high, hence the need for external legal service providers to fill that resourcing gap.
“My team constantly needs to anticipate and navigate potential issues and we can’t always address every problem that comes across our desk. Sometimes we are firefighting but it’s just as critical, if not more important, to build out the legal infrastructure to prevent fires from breaking out in the first place,” he said.
Although corporate legal teams rely heavily on law firms, this relationship is not without its own problems. A lack of transparency around fees is a common complaint, with some general counsels worried about justifying costs they themselves are not sure are always warranted.
My team constantly needs to anticipate and navigate potential issues and we can’t always address every problem that comes across our desk. Sometimes we are firefighting but it’s just as critical, if not more important, to build out the legal infrastructure to prevent fires from breaking out in the first place
Rienk Brouwer, Head of Legal, Vistra
A question of value
The Hong Kong fintech’s in-house counsel said: “At the end of the day, it all comes down to budget. In-house counsel is being pressured to do more with less and that expectation is being carrying forward to external legal providers. The problem, of course, is that external providers have their own cost pressures and this can create friction between the two sides.”
Daniel Himpson, head of Asia Pacific, Global Markets for international legal network Lex Mundi, told Conventus Law that a lack of transparency in legal fees was a recurring topic of concern for clients.
He noted that clients were increasingly frustrated at not having greater oversight of their cases’ different moving parts. Himpson said: “In multijurisdictional cases, requiring regulatory approvals in each territory, it can be a challenge to stay on top which jurisdiction is falling behind and needs more attention.”
He added that a desire for a granular approach to managing external spend was one of the reasons that inspired Lex Mundi to launch the Equisphere platform in 2020. The platform aims to allow member firms to offer clients instant access to all of their case data across multiple jurisdictions – including costs – via a single portal.
Himpson said: “Cost transparency is essential for companies, and general counsels need to be able to see at a glance which areas of a case are lagging. This is often an early sign of future cost problems that are beginning to emerge.”
Value extends beyond cost management, however, and also includes how law firms manage their assignments. For instance, a law firm’s ability to manage key stakeholder partnerships is essential to ensuring that the client does not have to redo work they hired outside counsel to manage.
At the end of the day, it all comes down to budget. In-house counsel is being pressured to do more with less and that expectation is being carrying forward to external legal providers. The problem, of course, is that external providers have their own cost pressures and this can create friction between the two sides.
Daniel Himpson, Head of Asia Pacific, Global Markets, Lex Mundi
The fintech’s in-house counsel said: “The provision of legal advice often involves input from various stakeholders which can require significant co-ordination and management. Many of our business partners do not have experience with lawyers, which can then make the co-ordination and management of feedback more time consuming.”
They added: “It is not efficient to pay outside counsel rates for this kind of work so it falls to us to manage stakeholder understanding. This invariably results in some duplication of work between us and outside counsel.”
Retreading old ground is a common concern for in-house counsel, with some of the survey’s participants noting that they had at time been forced to redraft documents prepared by an external legal team. This is far from desirable, given that companies outsource work because their legal departments have limited capacity in the first place.
At other times, in-house counsel can be left wondering how many “sets of eyes” have viewed a document and how this has inflated the final bill. While in-house teams can try to pin down costs on smaller projects, larger projects can be more difficult given the necessary scale up in labour.
Corporate legal teams of all sizes are seeing their resources under increasing pressure and while some are negotiating fixed quotations to minimise fee uncertainty, law firms themselves are reluctant to fully commit on this front. While an established working relationship with a trusted law firm is essential for streamlining work product, it can potentially complicate pricing negotiations, especially in cases where pre-agreed budgets are overrun.
Robin Scott, the group transformation director at Myanmar’s consumer business group City Holdings, told Conventus Law that his company only used external providers on a case-by-case basis, minimising its reliance on existing relationships. This allowed the company to “shop around” for expertise at the best price.
The regional regulatory head of one of Asia’s leading payment platforms, who wished to remain anonymous, told Conventus Law that they were at times baffled by law firms’ approach to billing.
They said: “There needs to be a greater adoption of phased billing that better reflects client needs. It all depends on what I already know, what I need to know and where the red flags are. Phased billing makes sense when I’m in that initial stage of figuring out a project.”
Billing is not the only source of concern for general counsels, however, with other common complaints including the fact that law firms can struggle to match their strategy with a business’ needs.
The disconnect
The disconnect occurs when law firms fail to understand their clients’ needs or skillsets at a micro level.
The payment platform’s regional regulatory head explained that their level of experience within the industry meant they were looking for more than just a conservative reading of the law.
They said: “There’s a real sticking point between the expectations of in-house legal teams and external providers. What I need most of the time is not an explanation of the law itself, I already know the law, what I want is a specialist’s take on how that law might be applied.”
Jiaxing said: “I already know the ins and outs of my particular problem and approach law firms with very detailed questions to get the most of the experience. My expectation is that an external provider is able to operate at this level and will not waste my time.”
He said his in-house team was focused on building “institutional relationships” with first-tier law firms and that if they had a bad experience with a firm then they would blacklist it and move on.
Scott said his legal department had been established to avoid seeking outside counsel as much as possible.
He said: “We handle all of our transactional, commercial and financial matters in-house as we find there’s less duplication of resources. Our team has a developed network of contacts that outside counsel does not and that often leaves us to finish work off. Paying for the same work twice raises questions of efficiency for the company.”
Himpson said in-house counsel’s sense of dissatisfaction stemmed from the fact that law firms had failed to ascertain clients’ desired business outcome.
Going to an international law firm with offices in multiple jurisdictions has obvious benefits. They have the knowledge and contacts we’re missing and can cast a wide net. At the same time, niche law firms can also be very attractive because of their personal service and inside edge on the ground.
Robin Scott, Group Transformation Director, City Holdings
Law firms need to spend more time understanding why a company is seeking external counsel in order to help shape the scope of work, minimise follow-up rounds of questioning and ultimately reduce the costs.
Indeed, alongside concerns over costs, the majority respondents in Conventus Law’s survey said law firms’ lack of familiarity with their company or industry as well as a mismatch between strategy and business were also primary concerns when using external counsel.
Network management
In-house legal teams generally rely on a broad network of law firms, with more than more than 75% of the survey’s respondents noting that their companies worked with 6-20 outside firms.
However, managing extensive networks comes with its own set of challenges. Building a bespoke network requires managing many disparate relationships, while relying on international law firms comes with a higher price tag. Moreover, while international law firms can boast an extensive network of international offices, not all offices are created equal – with some jurisdictions having more expertise than others.
Scott said: “Going to an international law firm with offices in multiple jurisdictions has obvious benefits. They have the knowledge and contacts we’re missing and can cast a wide net. At the same time, niche law firms can also be very attractive because of their personal service and inside edge on the ground.”
This was a sentiment echoed by the payment platform’s regional regulatory head, who noted that while international law firms enjoyed a presence in many jurisdictions, it was widely known throughout the legal world that some offices were simply stronger than others.
They said: “International law firms may not have the depth of knowledge on the ground to provide the level of opinion I need. In that case they may use the regional or global team to help put together a good faith brief. The problem with a good faith approach is that it’s not necessarily good.”
Himpson agreed that concerns over jurisdictional competency were common within the industry and argued that this was one of the attractions of legal networks. He said networks allowed top-tier independent law firms to remain the primary point of contact for the clients in multijurisdictional work.
He said “It’s commonly understood that international law firms have weaker satellite offices. At Lex Mundi we adopted high standards specifically to ensure there are no weak points in our network, across all 150 jurisdictions.”
This report was written by Andrew Kemp for Conventus Law in association with Lex Mundi.
For further information on legal networks, please contact:
Head of Asia Pacific, Global Markets for international legal network Lex Mundi,
+86.15618215481
dhimpson@lexmundi.com
About Lex Mundi
With more than 4,000 lawyers on the ground in 20 Asia/Pacific countries, Lex Mundi member firms have experience working together to provide investors coordinated legal advice and service covering all relevant areas of commercial and financial law, including mergers and acquisitions, dispute resolution, antitrust and competition, compliance and tax.
Lex Mundi’s global client service platform, Equisphere, launched in 2020 is designed to offer international organizations an attractive and innovative alternative when outsourcing multi-jurisdictional legal services, whether simple or complex. For clients, Equisphere provides an easy to use single interface with Lex Mundi members. You can create an international legal team tailored precisely to your geographical footprint and needs.
